A class action lawsuit was filed today against Harlequin Enterprises, Ltd., the world’s leading publisher of romance fiction, as well as Harlequin Books S.A., a Swiss corporation, and Harlequin Enterprises B.V., a Dutch corporation, on behalf of authors who entered into contracts with the company.

This lawsuit results from Defendant Harlequin Enterprises Limited, the world’s leading publisher of romance fiction, depriving Plaintiffs and the other authors in the class, of e-book royalties due to them under publishing agreements entered into between 1990 and 2004. Harlequin required the authors to enter into those agreements with a Swiss entity that it created for tax purposes, and that it dominates and controls. However, Harlequin, before and after the signing of these agreements, performed all the publishing functions related to the agreements, including exercising, selling, licensing, or sublicensing the e-book rights granted by the authors. Instead of paying the authors a royalty of 50% of its net receipts as required by the agreements, an intercompany license was created by Harlequin with its Swiss entity resulting in authors receiving 3% to 4% of the e-books’ cover price as their 50% share instead of 50% of Harlequin Enterprises’ receipts.

What this means to the authors can be illustrated by an e-book with a hypothetical cover price of $8.00. The “net receipts” made by Harlequin Enterprises Limited from the exercise, sale or license of e-book rights would be at least $4.00, of which authors would be entitled to $2.00 based on their 50% royalty. Computing the “net receipts” based on the “license” between Harlequin’s Swiss entity and Harlequin Enterprises, Plaintiffs’ 50% royalty amounts to only 24 to 32 cents.

Very probably is, in some ways. It matters much less if they’ll never work with Team Harlequin again, if they can go to Team Amazon, Team Kobo, Team B&N, Team iBookstore (tEam iBooks?) and Team Smashwords — and turn around and make anime “BLEAAAAHHHH” faces at the Big H.

Our contention is that despite having a contract that clearly spells out a royalty split of 50/50, HQ is basically licensing the book to itself (a wholly owned subsidiary of itself) at a deliberately low rate, so HQ pays authors only 3% royalties on e-book reissues of older romances, while HQ in its various entities receives 97% of the revenue.

It’s not fair, and I don’t think it’s legal, but I’m not a lawyer, just an author. We’ll let the courts decide.

I’m sure if I went to HQ and say, “Hey, license all those books to me. I’ll pay you 10% royalties and then you and the authors can each have 5%, a supposedly better deal for both of you, they’d turn me down.

Well, actually, I’m pretty sure I did offer them that deal when I argued to get my e-book rights back.

In other words, I make a deal with Teresa to split the proceeds for a co-written book 50/50. -I- will receive the advances/royalties income and distribute her 50% to her…

But then I make a deal with the publisher to pay the advances and royalties to a Sub-Chapter S corporation called Laura Resnick, of which I own 100%, rather than to me as an individual.

The publisher writes the anticipated advance check–for, say, $50,000–to “Laura Resnick, Incorporated.” The corporation then writes me, the individual Laura Resnick, a check for $4,000 for the book.

$4,000 is all that I, the individual Laura Resnick, have received for the book; because of the wording of the contract between us, I pay Teresa only $2,000, i.e. 50% of what “I” have received. Regardless of the fact that $46,000 for that same book is sitting in an account which I own, which funds I can distribute to myself as “dividends, company profits, and salaries,” from a corporation I own and which corporation isn’t mentioned in any profit-sharing contract or agreement that I have with Teresa.

That’s how it works. But, Hq being a large multi-national corporations with offices in one country, its bank in another, editorial in another, etc., etc., it’s a more complicated than that example (and presumably more difficult to trace and prove).

This lawsuit follows months of complicated behind-the-scenes negotiations (I think it’s been going on for about a year by now) which I’ve been following since their inception, since I’m friends with a number of the writers involved and know a couple of the lawyers who’ve been working on this behind the scenes.

This is a tremendously important case–writers standing up for their rights in the digital age against one of the largest publishing corporations in the world. (Hq has anchor offices in New York, London, and Toronto, a wordlwide international publishing empire in a couple of dozen languages, and it pays its writers from (yes, really) an account in -Switzerland-).

By way of disclosure, although I’ve cheered them on and asked for updates, and will continue to do so, I’m not at all involved in the case. Although I signed som Hq contracts during the period in question, I got all my rights reverted in full on all titles years ago (my last Hq reversion was in 2001, I think) and none of my contracts were still in effect when Hq launched its digital programs, so none of my titles have ever been part of Hq’s digital publishing world. (Well, except for one short-lived title which they e-published without authorization AFTER all rights had reverted; but I contacted the NINC Legal Fund for assistance and we got that resolved.)

In the last royalty period, the first time ebook sales showed up, Hq didn’t even bother to list the number of copies sold. They really are that arrogant.

I wonder what the bigwigs at Torstar think about this. The last financial report I saw showed that Hq isn’t coming close to making up for the loss in print sales through ebook sales. Which says something, doesn’t it? I mean, indie romance sales are through the roof.

If I were Hq, I’d pull all those backlist ebooks, revert the rights to the authors, then sit back and be very very quiet until this all blows over.

The trouble is, the rights to all those books are really just about the only asset Harlequin has. If they revert them, there’s nothing standing between them and bankruptcy when the cash cow dies.

This is a very serious matter for Torstar, by the way. For a long time, Torstar has been relying on the profits from subsidiaries like Harlequin to save them from the collapse of their newspaper business. Now, it seems, all their businesses are collapsing in jolly tandem. Oops.

Seriously, though: It isn’t the present sales figures of those books that make them valuable. It’s the possibility that one of those authors may (by her own efforts elsewhere) become a Big Name, which means possible money from reprinting her back catalogue (though that would take work) and a chance of option money from Hollywood (which takes no work at all). I’ve heard ghastly stories of other publishers that refuse to revert OOP works for exactly this reason.

And yes, I know exactly why Harlequin hangs onto all rights it can. But in the meantime, it threw a ton of titles up for sale as quickly as possible with sloppy cover scans and sloppy conversions to e-book format and isn’t doing anything to seriously promote them.

It’s like a kid who grabbed so many toys he can’t even hang onto them all and is screaming, “Mine! All mine!”

Um . . . um . . . I know! You want Science™ to evolve a genetically-engineered race of willing slave authors, who will love being cheated and ripped off! I can see it now — Work-for-Hire Writers of Gor!

What, that wasn’t the answer you were looking for? Is there another answer?

(This business of thinking like a publisher is scaring the bejeepers out of me. I think I’d better go and take my meds.)

“Now,” she said, “I’ve put up with a lot from you, but this is the last straw.”

“What is?” I demanded. I could not believe what I was hearing! She was my slave, on Gor, where the right way of things prevails and slaves are slaves and masters are masters and each is content in their right way–

“Will you stop already?” she said. She then reached into the large purse she was carrying and pulled out a massive book, a tome of amazing size such as could only be made on Gor, Earth books being weak, like Earth men, who are weak and contemptible–

“What did I just tell you?” she demanded. She held the book before me. “More than three million words already,” she said. “And now this.”

I recognized the latest installment of my accounts of Gor.

“It’s 717 pages long,” she said. “I’m not going to copyedit it for you. Forget it.”

“It is the latest chapter of the saga!” I exclaimed. “It reveals great truths about the Gorean philosophy!”

“Get a damn editor!” she cried, and brought the massive tome down hard on my head.

[The hysterical thing is how true it is; I recall reading one where he summarized the last 15 pages or so… about every 5 pages. I counted. Then I kept reading. It was like looking at an editorial train wreck.]

I’m sure Hq has their legal bases covered (or, you know, they were depending on their legal team to bully each author into submission). But there’s no doubt that this is morally wrong. When you promise 50% by contract and then only deliver 3%, that’s wrong. It doesn’t matter if creating subsidiaries to cull the profits is technically legal.

Anyway, I think Joe Konrath and others fisked this one hard enough a few months ago. I’ll just call Harlequin scum and leave it there.

I think there’s a good argument that the way HQ worded its contracts was designed to mislead authors concerning HQ’s standard means of doing business. There were larger royalty percentages that would never be applied.

They never intended to pay anyone 50/50 of anything. It was a catch-all phrase at the very end of a huge list of specific royalties for different editions/situations.
It was the, if absolutely nothing else applies, this will clause.
And there was nothing else in that long list of royalties that applied. So HQ had to say, this is it, this applies. But they couldn’t stand to pay us an actual 50%.

Oh, if you’d ever done business with harlequin, you’d probably be less convinced of that.

For example, in 2007, I got allr rights reverted to a title I’d published with Harlequin. In 2009, I found out that, months after the reversion, they’d gone ahead and published an ebook of that title. This was in direct violation of my copyright.

I assumed it was a careless mistake and could be resolved with some ordinary, sensible, businesslike behavior, i.e. I’d notify of them mistake, and they’d say, “oops,” immediately remove the title from sale, and send me a fiscal accounting and an aplogy.

Well, after two months of trying, without any sucess whatsoever4, to get their legal department simply to respond to my letters, I asked the NINC Legal Fund to help me, and I got a lawyer to contact them.

After TWO MORE MONTHS of their legal dept giving this lawyer the most inane, bizarre, sulky, juvenile, unprofessional run-around, we finally got this resolved… which is to say that Hq removed the title from sale and sent me a fresh copy of the old reversion papers. Nothing else was ever achieved, and their unprofessional, unbusinesslike behavior and stunningly legal ineptitude made me come within a millimeter of suing them… For a problem I’d started out thinking was an honest mistake which we could resolve quickly by acting like businesslike adults.

THAT is the crack legal dept you imagine has them covered for a class action suit for breach of contract and “creative” accounting practices, being led by a very capable attorney who’s won other important cases?

Me, I’m guessing that Hq is probably about as well prepared for a legal challenge like this as “Brownie” was for Hurricane Katrina.

I don’t know if Harlequin’s ever been the subject of a serious legal challenge in court before. Does anyone know?
And the whole e-book thing had them scrambling. They had to go back and try to come up with some way to get out of paying us 50%. It wasn’t like they wrote those contracts initially to handle this. So I think they’re vulnerable.

I can’t recall a class action suit against Hq before now. I can’t recall any challenge this big. (And Wolf is an excellent lawyer for this case. Was delighted to read he’s counsel for the plaintiffs.)

I do, however, recall at least one important lawsuit against them, albeit much smaller. Back when I was a young Hq writer in my 20s, a bestseller was challenging over the pseudonym clause, since they were trying to prevent her from using her pen name at other houses. It was a legal battle that went on for a while. I don’t remember any of the details–but since she did indeed use that name elsewhere (and kept doing do for years), I think she must have been successful. Must have cost her a FORTUNE, too, since I think she was all alone in that battle.

“It wasn’t like they wrote those contracts initially to handle this. So I think they’re vulnerable.”

I agree. Those clauses were written on the basis of assuming those rights would never be exploited, or never be worth anything, or would somehow function like foreign translation rights, etc.

They were not written on the basis of foreseeing how the ebook industry and digital distribution would actually work. The shell company game was an attempt to find a solution to the unforeseen… and I think it was a solution based on the errneous assumption that writers would just accept it, or at least never do more than whine and grumble about it.

A lot of multinational companies use the same tactics to avoid paying taxes; the US-based subsidiary “buys” the cars, game consoles, computers from a different subsidiary at a padded price, thereby reporting reduced profits and minimal tax liability.
The closest equivalent to the HQ scam seems to be in baseball, where most MLB teams reduce the team’s on-paper profits by setting up regional cable networks and selling themselves the local TV rights at ridiculously low prices, thereby shifting the profits away from the team.
Like HQ, the primary intent is to shaft the creators of the product.
It’ll be interesting to see if other BPHs (Penguin sounds like a likely candidate) play similar games with their endless subsidiaries.

Question: since Harlequin claims rights to pseudonyms in their contracts, can authors whose rights have been reverted self-publish the books under their pseudonyms? I wrote nine books for them. Most of those rights have reverted. I’ve self-pubbed my reverted backlist books from my other publisher successfully and would like to do the same with my romances. I want nothing more to do with conventional publishing!

Thanks TPV and is there a way to hear from authors actually involved in the law suit. Several of us following along would like to hear first witness facts and how it goes for individuals who are on the true front line. Those who have gotten their rights sent back to them by H, dont have skin in the game the way those who are current authors do. If you can bring us the first circle voices that would be great.